Definition of Business Contract: Everything You Need to Know
The definition of a business contract is a legally binding agreement between two parties regarding the buying and selling of goods or services. 3 min read
2. Breach of Contract
3. Contract Basics
4. The Fine Print
5. Adequate Consideration
6. Contract Enforcement
7. Types of Business Contracts
The definition of a business contract is a legally binding agreement between two parties regarding the buying and selling of goods or services.
What Is a Business Contract?
Everyone from major companies to small business owners and even independent contractors uses business contracts. Anytime products, duties, or services are being traded for a fee, it is wise to form a business contract between the two parties involved in the trade. Business contracts can be enforced with legal action and, therefore, protect the two parties from being taken advantage of.
In order to form a business contract, an offer of some sort must be extended by one party and officially accepted by the other along with the following:
- Promise to perform a service, duty, or deliver a product
- The time requirements of the delivery or performance
- The terms and conditions of the agreement
Once the contract is formed, both sides are required to carry out their part of the agreement. The tasks agreed to must be performed, and the agreed payment must be given.
Business contracts can be verbal or implied, but usually, they are written. The most common types of business contracts include:
- Employment contracts
- Sales or lease agreements
- Tenancy contracts
Breach of Contract
In the case of a breach of contract by one of the parties involved, the other party has legal support to remedy the issue. The party that broke the contract can either be forgiven of the breach and restored to their original position in the agreement or they can be punished.
The punishment for breach of contract should be reasonable and proportional to the weight of the agreement.
When two parties sign a contract, they each take on certain rights and responsibilities that should be proportional to the rights and responsibilities of the other in order to create a fair agreement. If there is not a good balance between what's promised by and required of each party, the court could find the contract to be unconscionable and therefore not enforceable by law.
If you want your business contract to hold up in court, there are a few key things to keep in mind.
You'll want to start out by finding a few sample contracts or templates to help be sure you don't miss any necessary pieces. Certain industries are required to follow state regulations for their business contracts, so be sure to check the requirements. Sitting down with a business lawyer will help you make sure you draft a good, valid contract.
The Fine Print
The main part of any contract is the deal that is being made, but the fine print is also a very important aspect of the agreement. Businesses who want to maintain some competition should be careful to create a well-formulated fine print that will make the deal even better.
For a contract to be legal and enforceable, it must include the exchange of a promise and what is called "adequate consideration." The adequate consideration of a contract is what is driving the contract to be made. For example, the payment for a roofing company is what drives them to enter into a contract to put a new roof on your house.
The concept of adequate consideration is what separates contracts from gifts. If you are giving a gift, you are not driven by any benefit or detriment to yourself.
Depending on the type of contract formed, it will most likely be enforceable under one of the following:
- Private law
- State law
- Common law
Under state laws, the Uniform Commercial Code governs certain types of contracts like some sales agreements and secure transactions. Federal law might get involved if a contract is formed within a particular industry or around a highly regulated activity.
Types of Business Contracts
Some other common types of business contracts include:
- Power of attorney agreements
- Bill of sale contracts
- Construction contracts
Unilateral contracts involve one party promising payment or something equal to for the performance of a particular task.
Bilateral contracts exchange the promise of one party for the promise of another.
Contracts do not necessarily need to be in written form, but verbal and implied contracts are harder to enforce and don't provide a very large window of opportunity for either party to take legal action.
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